[Per: Shreesha Merla, Member (T)]
1. Aggrieved by the Impugned Order dated 25/02/2022, passed by the Learned Adjudicating Authority (National Company Law Tribunal, Mumbai Bench, Court-III) in C.P. (IB) No. 982(MB)/2020, ‘M/s. Godrej & Boyce Manufacturing Co. Ltd.’/the ‘Operational Creditor’ preferred this Appeal under Section 61 of the Insolvency and Bankruptcy Code, 2016, (hereinafter referred to as ‘The Code’). By the Impugned Order, the Adjudicating Authority has dismissed the Application filed by the Appellant/‘Operational Creditor’ under Section 9 of the Code against ‘M/s. Satec Envir Engineering (India) Pvt. Ltd.’/the ‘Corporate Debtor’, observing as follows:
13. The Bench notes that in a letter dated 20.12.2018 addressed to IOCL, the Petitioner who are the contractors themselves had mentioned to IOCL, that the racking material due to exposure to rains and dust during installation and because of negligence and improper storage had corroded. Therefore, the Petitioner had strongly recommended that IOC should not use the racking system as the same is not certified for safe use.
14. It is clear to the Bench that and as admitted by Petitioner that there are serious problems with the racking system installed by them and also admits that the system has not yet undergone a safety audit and, therefore, was a non-certified weak racking. The Petitioner itself requested IOCL "not to use the system any further as the same has not been certified for safe use". The Petitioner ends the letter by saying that "Hope u find this in order and would ensure that the safety alert being raised is taken seriously and necessary correctives are undertaken without any further delay." The Bench notes that instead of rectifying the defective work, the Petitioner abandoned the Haldia project and did not carry out any work on the project.
15. The Bench also notes that both the work orders required 100% completion of the work as a precondition for payment. Admittedly, the project has not been completed and that is the reason that the Petitioner cannot claim the payment for such defective and incomplete work. The Bench also notes that demand notice was issued by the Petitioner on 23.10.2019. However, there are genuine pre-existing disputes much prior to the issuance of the demand notice. It is well settled that an applicant u/s 9 of the IBC is required to be dismissed if genuine dispute exists between the parties. In recent Judgment of Hon'ble Supreme Court in Kay Bouvet Engineering Ltd us. Overseas Infrastructure Alliance (India) Private Limited 2021 SC OnLine SC 570, the Hon'ble Supreme Court developed upon the law relied upon its earlier judgment in Mobilox and held that:
"17... All that the adjudicating authority is required to see at this stage is, whether there is plausible contention which requires further investigation and that the dispute is not a patently feeble legal argument or an assertion of fact unsupported by evidence. It is important to separate the grain from the chaff and to reject a spurious defence which is a mere bluster. It has been held that however, at this stage, the Court is not required to be satisfied as to whether the defence is likely to succeed or not. The Court also cannot go into the merits of the dispute except to the extent indicated hereinabove. It has been held that so long as a dispute truly exists in fact and is not spurious, hypothetical or illusory, the adjudicating authority has no other option but to reject the application."
16. In this Petition the Petitioner has clubbed the payments of two projects, one each at Bongaigaon and Haldia under two different work orders as part of a single Petition. This, as per the Bench, in terms of the clubbing of two claims under different work orders for different amount is not permissible. As per the pronouncement made by Hon'ble NCLAT in the matter of International Road Dynamics South Asia Put. Ltd. [Company Appeal (AT) (Insolvency) No. 72 of 2017] where the NCLAT had held the following:
"10. We are of the view that different claims) arising out of different agreements or work order, having different amount and different dates of default, cannot be clubbed together for alleged default of debt, the cause of action is being separate. For the said reasons, we hold that the joint application preferred by appellant under Section 9 is defective, as distinct from incomplete, and, was not maintainable."
2. Submissions of the Learned Sr. Counsel appearing on behalf of the Appellant:
• It is submitted that the ‘Corporate Debtor’, engaged primarily in executing Orders from the Government and the other customers for Warehouse Development and three fabrications work Project approached the Appellant for supply and installation of a Multitier Racks for Heavy Duty Shelving for two separate work sites for the end user i.e., Indian Oil Corporation Ltd. (IOCL) at Haldia, West Bengal and Bongaigaon, Assam respectively.
• A Purchase Order dated 18/05/2017, for the supply of Multitier Heavy Duty Shelving amounting to Rs.1,43,94,240/- was issued for the Haldia Project along with a corresponding Work Order dated 18/05/2017, for the installation of the Multitier Heavy Duty Shelving amounting to Rs.8,05,000/-. The payment terms for Purchase Order inter alia comprised of 30% advance along with ‘Advance Bank Guarantee’, 60% against Letter of Credit (LC) before dispatch and 10% against commissioning.
• For the Project at Bongaigaon, a distinct Purchase Order dated 01/06/2017, for the supply of Multitier Heavy Duty Shelving amounting to Rs.83,40,030/- accompanied with Work Order bearing No. SEE/BJ/WO-038/2017-18 dated 01/06/2017, for the installation of the Multitier Heavy Duty Shelving amounting to Rs.4,60,000/- were issued by the Respondent. The payment terms for the Purchase Order mirrored the Haldia site i.e., 30% advance along with ‘Advance Bank Guarantee’, 60% against LC before dispatch and 10% against commissioning and the payments terms for the Work Order was identical to the terms in the Haldia site.
• It is submitted that the total value of the invoices raised by the Appellant upon the ‘Corporate Debtor’ is Rs.2,45,51,513/- vide 34 invoices pertaining to the supply and installment at both Haldia and Bongaigaon. Despite several requests the outstanding payments were not made.
• On 07/12/17, the ‘Corporate Debtor’ vide an email admitted that an amount of Rs.1,35,49,360.17/- was outstanding and due and payable for the IOCL Haldia site and an amount of Rs.83,40,030/- was outstanding and due and payable for the Bongaigaon site.
• Learned Sr. Counsel drew our attention to the Comfort Letter issued by IOCL on 23/01/2018 undertaking to release the payments to the tune of Rs.42,41,947.64/-; the balance against completion of the erection of the racking system and the rest i.e., Rs.63,62,921.47/- would be released after completion of the job in totality with first preference to the Appellant after due certification by the ‘Corporate Debtor’ and acceptance of the PMC. It is submitted that in their email dated 07/02/2018, the Appellant pointed out discrepancies in the amounts proposed to be paid by IOCL as mentioned in the Comfort Letter.
• Learned Sr. Counsel strenuously contended that there was no ‘PreExisting Dispute’ and that the end user IOCL had given a Comfort Letter only on account of the outstanding dues to be paid by the ‘Corporate Debtor’. Subsequently, there was correspondence between the parties i.e., the Appellant and IOCL regarding deficit in the amounts mentioned in the Comfort Letter. On 08/02/2018, IOCL addressed an email stating that they cannot go beyond the Contractual Value mentioned in their Work Order. On 13/02/2018, the Appellant addressed an email to ‘Engineering (India) Ltd.’ (EIL) who were the Project Management Consultants of IOCL to register the Appellant’s complaint against the ‘Corporate Debtor’ as an amount of Rs.1.44Crs./- was still unpaid for the Haldia site and Rs.89 Lakhs/- for Bongaigaon site.
• Thereafter there was communication on 03/05/2018, 16/08/2018, 09/02/2018, 20/02/2018 and on 23/01/2018 between the Appellant and the IOCL. On 27/10/2018, there was a Meeting held between IOCL and the Appellant and EIL and payment terms for the completion was discussed. EIL addressed a letter dated 30/11/2018 informing the Appellant inter alia, that some shortcomings were noticed in the Inspection Report and requested the Appellant to deploy an experienced engineer for rectification of the same. On December 20, 2018, the Appellant addressed a letter to IOCL regarding the safety of the Godrej Racking System installed at the IOCL factory. It was pointed out that the racking material which was delivered, was lying outside in the open without adequate protection and exposed to direct rain and dust. The Appellant also stated that the same should be used after a safety check to avoid any mishaps. On December 27, 2018, the Appellant addressed a letter to IOCL that the request to start work as mentioned in the letter dated 27/10/2018 has not been issued. Thereafter vide an email dated 14/01/2019, the Appellant informed EIL that it would not be possible for the Appellant to execute the work without a formal Purchase Order from IOCL.
• On 11/07/2019, the Appellant addressed an email to the ‘Corporate Debtor’ that as per the Purchase Order terms, the advance payments of only Rs.11,25,000/- was made (which is only to be 9% of the Order Value) against a total due of Rs.37,63,200/- and that Rs.1,40,74,240/- was overdue since last more than two years and that there was no response from the ‘Corporate Debtor’.
• The Appellant had issued a Demand Notice under Section 8 of the Code claiming an amount of Rs.3,33,90,057/- on 23/10/2019. On 20/12/2019, the ‘Corporate Debtor’ replied to the Appellant’s Demand Notice stating that there was no ‘Operational Debt’ ‘due and payable’, but had not raised any dispute prior to the issuance of the Demand Notice nor placed any documents on record annexing to their Reply; that there were any pending disputes between the ‘Corporate Debtor’ and the Appellant herein.
• Learned Sr. Counsel contended that the Adjudicating Authority has failed to consider that the ‘Corporate Debtor’ was raising a dispute after the issuance of the Demand Notice merely as an afterthought and that there was no ‘Pre-Existing Dispute’ between the parties and that merely because there was a possibility of accepting direct payments from IOCL, on account of the Comfort Letter given, the ‘Corporate Debtor’ cannot be absolved of its Contractual Rights or obligations under the terms and conditions of the Purchase Orders and Work Orders.
• It was only because IOCL was the end user that they had issued a Comfort Letter dated 23/01/2018 stating that due to severe fund crunch of the ‘Corporate Debtor’, IOCL was undertaking to release the payments to the Appellant in respect of the supply and instalment work for both Haldia and Bongaigaon sites.
• Learned Sr. Counsel submitted that the Adjudicating Authority has wrongly observed that the contents of the letter dated 20/12/2018 addressed by the Appellant to IOCL signifies that there were disputes with regard to the work carried by the Appellant. The Appellant had completed the supply of all materials as per the Purchase Orders at both the sites and there were no ‘Pre-Existing Disputes’ between the parties.
3. Submissions of the Learned Counsel appearing for the Respondent/‘Corporate Debtor’:
• Learned Counsel for the ‘Corporate Debtor’ submitted that after 2018, the ‘Operational Creditor’ had never contacted the ‘Corporate Debtor’ and was directly in touch with IOCL, the end user and a Comfort Letter dated 23/01/2018 was issued by IOCL to the ‘Operational Creditor’ which signifies that a fresh contract was executed between them.
• Learned Counsel drew our attention to the letter dated 28/01/2018 in support of her contention that the entire communication was between IOCL and the Appellant with offers and counter offers having been exchanged.
• It was further submitted that after rounds of negotiations, the Appellant had finally accepted the amounts offered by IOCL and that there was absolutely no privity of contract between the ‘Corporate Debtor’ and the Appellant subsequent to 2018 and that disputes were raised by IOCL which required rectification by the Appellant only.
4. The main point for consideration is whether there were any ‘PreExisting Disputes’ between the ‘Corporate Debtor’ and the Appellant herein/‘Operational Creditor’ and whether the Adjudicating Authority was justified in dismissing the Section 9 Application.
5. Learned Sr. Counsel for the Appellant drew our attention to the Purchase Order issued by the Appellant to the ‘Corporate Debtor’ to specify that the payment terms are 30% advance payment, 50% against LC before dispatch and 10% against commission.
6. For better understanding of the case, the letter dated 23/01/2018 addressed by IOCL to the Appellant is being reproduced as hereunder:
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7. From the aforenoted letter, it is clear that the ‘Corporate Debtor’ was undergoing financial crunch on account of which the end user M/s. IOCL has undertaken to make the payment to the tune of Rs.42,41,947.64/- against completion of erection of the racking system and the balance would be released after the completion of the job in totality, with due certification by the ‘Corporate Debtor’. It is the case of the ‘Corporate Debtor’ that this communication signifies that it is the end user IOCL which has undertaken to pay the amounts for and on behalf of the ‘Corporate Debtor’ and hence no liability can be fastened upon them.
8. At this juncture, to understand whether there is any direct payments made by IOCL/promised to be made by IOCL, we also reproduced subsequent letter dated 07/02/2018 hereunder:
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9. From this letter, it is clear that the amount was to be paid directly by IOCL to the Appellant and IOCL had undertaken to make good the deficit amounts also.
10. The material on record evidences that on 03/05/2018, a Comfort Letter was requested to be issued by the Appellant to IOCL against the Purchase Order for the supply of instalment of Multitier Racks for Heavy Duty Shelving. The correspondence dated 16/08/2018 between the Appellant and IOCL further strengthens the argument of the Respondent that the payment would be realized by IOCL after complete erection of system and the balance after completion of entire racking system.
11. It is pertinent to mention that the communication dated 08/09/2018 and 20/10/2018 addressed by the Appellant to IOCL request that as per the Comfort Letter, the total amount proposed as direct payment by IOCL to the Appellant is to be released at the earliest.
12. It is the case of the Respondent/‘Corporate Debtor’ that even for the Review Meeting the ‘Corporate Debtor’ was not present and it was held between IOCL and EIL and the Appellant herein. The Minutes too do not record the presence of the ‘Corporate Debtor’. From the aforenoted communication, this Tribunal is of the considered view that the payments were to be made, as per the Comfort Letter, by IOCL to the Appellant herein.
13. Now we address ourselves to the main issue as to whether there is any ‘Pre-Existing Dispute’ existing between the parties prior to the issuance of the Notice mandated under Section 8 of the Code, based on the touchstone of the ratio of the Hon’ble Supreme Court in ‘Mobilox Innovations Pvt. Ltd.’ Vs. ‘Kirusa Software Pvt. Ltd.’ (2018) 1 SCC 353, [LQ/SC/2017/1416] where in the Hon’ble Apex Court has observed as follows:-
“40. It is clear, therefore, that once the operational creditor has filed an application, which is otherwise complete, the adjudicating authority must reject the application under Section 9(5)(2)(d) if notice of dispute has been received by the operational creditor or there is a record of dispute in the information utility. It is clear that such notice must bring to the notice of the operational creditor the “existence” of a dispute or the fact that a suit or arbitration proceeding relating to a dispute is pending between the parties. Therefore, all that the adjudicating authority is to see at this stage is whether there is a plausible contention which requires further investigation and that the “dispute” is not a patently feeble legal argument or an assertion of fact unsupported by evidence. It is important to separate the grain from the chaff and to reject a spurious defence which is mere bluster. However, in doing so, the Court does not need to be satisfied that the defence is likely to succeed. The Court does not at this stage examine the merits of the dispute except to the extent indicated above. So long as a dispute truly exists in fact and is not spurious, hypothetical or illusory, the adjudicating authority has to reject the application.”
14. The definition of the word ‘dispute’, is in fact, illustrative, the ‘Corporate Debtor’ is not left with the only option of showing the ‘existence of dispute’ by way of a pending Suit or Arbitration but can exercise its right to show that goods and/or services supplied were substandard and deficient in quality.
15. Section 5(6) of the Code defines ‘dispute’ as follows:-
“5. Definitions.—In this Part, unless the context otherwise requires,—
………………………….. (6) “dispute” includes a suit or arbitration proceedings relating to— (a) the existence of the amount of debt; (b) the quality of goods or service; or (c) the breach of a representation or warranty;”
16. Now we address ourselves to whether there was any ‘Pre-Existing Dispute’ regarding quality/supply of the material by the Appellant. The communication dated 30/11/2018 by EIL to the Appellant herein evidences that there were some shortcomings listed namely the test certificate of the materials were not found with the documents; that for fabrication/profiling of racking materials, plates of different sizes has been used; and the Appellant was requested to deploy their experienced engineer for rectification of the shortcomings.
17. It is the case of the Appellant that the racking material was in possession of IOCL and was lying outside in the open without adequate protection being exposed to direct rain and dust and it is only on account of negligence in storing the material that the paint was peeled off and there was corrosion on the critical components.
18. The dispute between the parties is on account of the shortcomings observed in the quality of the racking materials supplied to IOCL. The letter dated 30/11/2018 addressed to the Appellant specifies that there are discrepancies and the test certificates of all plates/materials is absent. As the letter dated 30/11/2018 is the main document emphasizing the dispute raised, which is neither frivolous nor spurious, it is being reproduced hereunder:
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19. The Hon’ble Supreme Court in para 45 of ‘Mobilox Innovations Pvt. Ltd.’ (Supra) has observed as follows:-
“45. Going by the aforesaid test of “existence of a dispute”, it is clear that without going into the merits of the dispute, the appellant has raised a plausible contention requiring further investigation which is not a patently feeble legal argument or an assertion of facts unsupported by evidence. The defense is not spurious, mere bluster, plainly frivolous or vexatious. A dispute does truly exist in fact between the parties, which may or may not ultimately succeed, and the Appellate Tribunal was wholly incorrect in characterizing the defense as vague, got-up and motivated to evade liability.”
20. For all the aforenoted reasons and the ratio of the Hon’ble Supreme Court in ‘Mobilox Innovations Pvt. Ltd.’ (Supra) this Tribunal is of the considered view that there is a ‘Pre-Existing Dispute’ and the aforenoted correspondence establishes that ‘a dispute truly exists in fact between the Parties, which is not a patently feeble legal argument or an assertion of facts, unsupported by evidence’.
21. Hence, we are of the view that the there is no illegality of infirmity in the Order of the Adjudicating Authority and this Appeal fails and is accordingly dismissed. No Order as to costs.
